The author is a Forbes contributor. The opinions expressed are those of the writer.

Loading ...

Loading ...

This story appears in the {{article.article.magazine.pretty_date}} issue of {{article.article.magazine.pubName}}. Subscribe

It's not too often one can find a stock with big earnings growth and a high yield. But in the case of Calumet Specialty Products Partners L.P. (CLMT - Snapshot Report), a current year earnings growth projection of 145% coalesces with an 8% distribution. Yet, it also exhibits low valuation metrics, with a forward P/E of just 9.2 and a price-to-sales (P/S) ratio as low as 0.4.

Presently trading near its 52-week high, units of this Zacks #1 Rank (Strong Buy) have climbed 35% during the past three months. With accretive acquisitions, widened crack spreads and a PEG ratio of less than 1.0, this producer of specialty hydrocarbons in North America looks like a compelling value play with a potential for further upside.

Indianapolis-based Calumet Specialty Products Partners L.P. is a publicly traded master limited partnership that is engaged in the production of customized lubricating oils, solvents, waxes and asphalt from crude oil and other feedstock. The partnership also makes fuel products like gasoline, diesel and jet fuel.

Strong 2Q, Jump in DCF: Calumet Specialty Products reported second quarter earnings per unit of $1.03 on August 1, beating the Zacks Consensus Estimate of 53 cents by 94% and the year-ago earnings of 19 cents by 442%.

Revenues of $1,087.0 million were up 48% year over year from $733.8 million, and also surpassed the Zacks Consensus Estimate of $896.0 million. Results were driven by high crack spreads and contribution from last year’s 45,000 barrels-per-day (Bbl/d) Superior (Wisconsin) refinery purchase from El Dorado, Arkansas-based Murphy Oil Corp. (MUR - Analyst Report).

For the three months ended June 30, total volumes for the Specialty and Fuel Products segments rose 25% and 83%, respectively. Importantly, distributable cash flow (DCF) jumped approximately 274% year over year to $94.9 million, which bodes well for future distribution increases.

Calumet Specialty Products has a proven record of growth through acquisitions. The partnership has been aggressive in purchasing assets that help support its cash flow stability and complements its business. The latest in this series is the proposed buyout of a small refinery in Montana for about $120 million. The transaction – expected to close in the fourth quarter – will enhance Calumet’s refining capacity by a further 9,800 Bbl/d and be immediately accretive to its DCF.

Generous Distribution Yield

The partnership has raised distributions by approximately 30% over the past four years and currently dishes out an impressive 7.7% yield. On July 20, Calumet Specialty Products hiked its quarterly cash distribution to 59 cents per unit ($2.36 per unit annualized), representing an increase of 5% over the previous payout.